Notes

Creating Blue Oceans
A ONE TIME ACCORDION PLAYER, stilt-walker, and fireeater,
Guy Laliberté is now CEO of Cirque du Soleil,
one of Canada’s largest cultural exports. Created in 1984 by a group
of street performers, Cirque’s productions have been seen by almost
forty million people in ninety cities around the world. In less than
twenty years Cirque du Soleil has achieved a level of revenues that
took Ringling Bros. and Barnum & Bailey—the global champion of
the circus industry—more than one hundred years to attain.
What makes this rapid growth all the more remarkable is that it
was not achieved in an attractive industry but rather in a declining
industry in which traditional strategic analysis pointed to limited
potential for growth. Supplier power on the part of star performers
was strong. So was buyer power. Alternative forms of entertainment—ranging
from various kinds of urban live entertainment to
sporting events to home entertainment—cast an increasingly long
shadow. Children cried out for PlayStations rather than a visit to
the traveling circus. Partially as a result, the industry was suffering
from steadily decreasing audiences and, in turn, declining revenue
and profits. There was also increasing sentiment against the
use of animals in circuses by animal rights groups. Ringling Bros.
and Barnum & Bailey set the standard, and competing smaller circuses
essentially followed with scaled-down versions. From the perspective
of competition-based strategy, then, the circus industry
appeared unattractive.
Another compelling aspect of Cirque du Soleil’s success is that
it did not win by taking customers from the already shrinking circus
industry, which historically catered to children. Cirque du Soleil
did not compete with Ringling Bros. and Barnum & Bailey. Instead
it created uncontested new market space that made the competition
irrelevant. It appealed to a whole new group of customers:
adults and corporate clients prepared to pay a price several times
as great as traditional circuses for an unprecedented entertainment
experience. Significantly, one of the first Cirque productions
was titled “We Reinvent the Circus.”
New Market Space
Cirque du Soleil succeeded because it realized that to win in the future,
companies must stop competing with each other. The only way
to beat the competition is to stop trying to beat the competition.
To understand what Cirque du Soleil has achieved, imagine a
market universe composed of two sorts of oceans: red oceans and
blue oceans. Red oceans represent all the industries in existence
today. This is the known market space. Blue oceans denote all the
industries not in existence today. This is the unknown market space.
In the red oceans, industry boundaries are defined and accepted,
and the competitive rules of the game are known. Here, companies
try to outperform their rivals to grab a greater share of existing demand.
As the market space gets crowded, prospects for profits and
growth are reduced. Products become commodities, and cutthroat
competition turns the red ocean bloody.
Blue oceans, in contrast, are defined by untapped market space,
demand creation, and the opportunity for highly profitable growth.
Although some blue oceans are created well beyond existing industry
boundaries, most are created from within red oceans by expanding
existing industry boundaries, as Cirque du Soleil did. In blue
oceans, competition is irrelevant because the rules of the game are
waiting to be set.
It will always be important to swim successfully in the red ocean
by outcompeting rivals. Red oceans will always matter and will always
be a fact of business life. But with supply exceeding demand
in more industries, competing for a share of contracting markets,
while necessary, will not be sufficient to sustain high performance.
Companies need to go beyond competing. To seize new profit and
growth opportunities, they also need to create blue oceans.
Unfortunately, blue oceans are largely uncharted. The dominant
focus of strategy work over the past twenty-five years has been on
competition-based red ocean strategies. The result has been a
fairly good understanding of how to compete skillfully in red waters,
from analyzing the underlying economic structure of an existing
industry, to choosing a strategic position of low cost or differentiation
or focus, to benchmarking the competition. Some discussions
around blue oceans exist. However, there is little practical guidance
on how to create them. Without analytic frameworks to create
blue oceans and principles to effectively manage risk, creating
blue oceans has remained wishful thinking that is seen as too risky
for managers to pursue as strategy. This book provides practical
frameworks and analytics for the systematic pursuit and capture of
blue oceans.